CMS releases proposed rules for Accountable Care Organizations

The shift from today’s volume-based payment system to tomorrow’s value-based methodologies took a major step forward yesterday. The Centers for Medicare & Medicaid Services (CMS) released  proposed rules for the new Accountable Care Organization (ACO) program.  Although the proposed regulations will be the subject of extensive comment and will undoubtedly be changed before final adoption, the coming transformation in Medicare reimbursement is so profound that the rules command the attention of governing boards and other healthcare leaders now.

Rather than read the entire 429 pages, board members would be wise to read an article in March 31 issue of the New England Journal of Medicine by CMS Director Donald M. Berwick, MD, MPP.  It lays out the rationale and essential principles for ACOs. Key points include:

  • “Because in many settings no single group of participants — physicians, hospitals, public or private payers, or employers — takes full responsibility for guiding the health of a patient or community, care is distributed across many sites, and integration among them may be deficient. Fragmentation leads to waste and duplication — and unnecessarily high costs.”
  • Under the Affordable Care (ACA) Act, ACOs are designed “to foster change in patient care so as to accelerate progress toward a three-part aim: better care
    for individuals, better health for populations, and slower growth in costs through improvements in care.”
  • “Under the law, an ACO will assume responsibility for the care of a clearly defined population of Medicare beneficiaries attributed to it on the basis of their patterns of use of primary care. If an ACO succeeds in both delivering high-quality care and reducing the cost of that care to a level below what would otherwise
    have been expected, it will share in the Medicare savings it achieves.”

The article summarizes the proposed rule’s provisions regarding who can form and lead ACOs, including: physician groups; physician practice networks; hospitals that employ physicians; and partnerships among these entities.  It describes how ACO should be governed –by providers, but with the voices of patients and community involved too.  CMS is proposing to offer two models for ACOs to share financial rewards and risks with Medicare, one low risk, the other higher risk but also high potential return. The article also articulates 65 quality performance measures for judging ACO performance.

The shared savings program is not the end point for ACOs, Berwick stresses, but rather, it is designed to first of many “delivery-reform efforts such as expanded use of medical homes, bundled payments, value-based purchasing, adoption of information technology, and payment reforms are under way or under consideration.” 

Thus, an ACO is really a structure for carrying out a cultural transformation in healthcare delivery from incentivizing volume to rewarding peformance in in improving individual and population health and controlling costs. Boards should be asking how ready their organization is to work in collaboration with physicians to measure and manage both the costs and quality of patient care — to individual patients and to targeted populations groups such as those with diabetes, heart disease, hypertension, and the frail elderly.

Berwick concludes: “Whatever form ACOs eventually take, one thing is certain: the era of fragmented care delivery should draw to a close. Too many Medicare beneficiaries — like many other patients — have suffered at the hands of wasteful, ineffective, and poorly coordinated systems of care, with consequent costs that are proving unsustainable. CMS believes that with enhanced cooperation among beneficiaries, hospitals, physicians, and other health care providers, ACOs will be an important new tool for giving Medicare beneficiaries the affordable, high-quality care they want, need, and deserve.”

Healthcare Reform: The Next Chapter Begins

As hospitals, health systems and physicians gear up for the implementation of the Affordable Care Act (ACA), the board’s radar screen has to track the growing judicial and legislative challenges that could alter or even nullify the new law.

This week featured major developments in Congress and the courts, as well as from CMS.

On Monday, in a case brought by 26 state attorneys general, U.S. District Court judge Roger Vinson ruled the entire law unconstitutional. An editorial in the Wall Street Journal details Vinson’s rationale that law exceeds the federal government’s Constitutional powers, by requiring people to buy something, i.e., health insurance, and penalizing them if they don’t. Because the bill’s backers excluded the usual “severability clause” (arguing that the law’s elements reforming the healthcare system are irrevocably intertwined), Vinson said he had no choice but to label the entire law unconstitutional. A Virginia judge previously ruled only part of the bill unconstitutional.

But the battle isn’t over. Experts expect these cases and others will work their way through the appellate courts to the Supreme Court, with a decision not expected before the end of 2011 and most likely 2012. There, the law’s defenders will mount an impassioned legal defense of the law. To read one thoughtful analysis, look at attorney Timothy Jost’s response to the Vinson opinion, published by Health Affairs.

In Congress, the Senate as expected rejected a House-passed bill to repeal the ACA, but Republicans promised to dull the law’s impact through other means, such as not funding agencies and programs created by the new law.  A story by Congressional Quarterly HealthBeat Editor John Reichard, published by The Commonwealth Fund, predicts thatworries over deficit spending are going to frame Washington’s big policy debates in the coming year. One proposal will be to change Medicare from a defined benefit to a defined contribution plan and give seniors a voucher to buy their own plans on an open market.

Meanwhile, the Centers for Medicare and Medicaid Services keep forging ahead.On Jan. 25 CMS issued a final rule implementing the ACA’s provisions to reduce fraud, waste and abuse. Rules implementing the Accountable Care Organizations payment program are expected any time.  The Fierce Healthcare newsletter reports today that in a talk, CMS interim Administrator Don Berwick signalled the rules will address such topics as:

  • What will the risk financing arrangements look like?
  • How will beneficiaries be protected from cherry picking by ACOs?
  • What be the metrics?
  • What will the privacy and data sharing rules be?
  • To raise capital, who can invest in ACO?

What are health systems to do amid the uncertainty? At a governance level, it’s important to separate strategic from operational decisions, and keep the board focused on strategy and risk. Strategically, there’s a compelling case that healthcare payment is truly shifting from piecework to value-based, and therefore, providers must be able to take accountability for cost and quality. An article in the current issue of Trustee magazine from Kaufman, Hall & Associates, Inc. argues that hospitals will need eight core competencies, including physician integration, cost management, and scale/market essentiality.

A column in Bloomberg Businessweek by Susan Devore of Premier articulates the rationale for accountable care organizations and explains why 25 health systems in the Premier alliance are testing a variety of approaches for new forms of care delivery and payment. Generally, the public doesn’t understand the revolution underway in healthcare delivery and the benefits it could offer — but this case needs to be made and Devore does a good job stating it.

The next several months promise a continuing saga in the ACA legislation.

Hospitals Taking Initiative to Be Accountable for Care

If health care reform fails, it won’t be for lack of trying by many of the nation’s leading health systems and their physician partners.  Although many hospitals are still trying to determine what the Patient Protection and Affordable Care Act means for them, those on the leading edge are forging ahead.

One example: Fairview Health System in Minnesota.  Writing on the Action for Better Healthcare blog, Mike Stephens, former CEO at Hoag Memorial Presbyterian in Los Angeles, calls attention to Fairview’s efforts in six areas:

  1. Redesigning primary care around multi-disciplinary teams, patient engagement, and technology in Fairview’s 42 clinics
  2. Following “care packages” of best care practices designed by Fairview and University of Minnesota physicians
  3. Delivering care virtually over the Internet without a face-to-face interaction
  4. Collaborating with payers
  5. Collaborating with employers
  6. Using new technology to increase efficiency and improve outcomes.

Fairview has posted a summary of its efforts including a video on its public website.

Fairview is one of several systems profiled November 28  by the Wall Street Journal in an article entitled “Embracing Incentives for Efficient Health Care.”  Among the others, Tucson Medical Center is forming a company that the hospital will own jointly with local physicians’ practices to act as an Accountable Care Organization (ACO). The Billings Clinic in Montana, an integrated physician and hospital organization, is also preparing to take steps to become an ACO. The clinic hopes to build on lessons from an earlier Medicare pilot program in which the the clinic says it reduced hospital admissions for around 500 heart-failure patients by 35% to 43%, saving Medicare more than $3 million over three years. The efforts focused on close monitoring of patients who called in daily to provide measures like their weight.

We’ve written in the past about innovations at Advocate Physician Partners in Chicago. Advocate Physician Partners’ Clinical Integration Program unites over 3,600 independent and employed physicians and the eight Advocate hospitals in a nationally recognized program with improved clinical outcomes and reduced health care costs. Now, Advocate has announced a new educational symposium on February 24th that explains how its Clinical Integration Program works.  This is a pragmatic, practitioner-led symposium that can help others move forward to take accountability for value and outcomes.

Other sources of information include the Commonwealth Fund, American Hospital Association, and Great Boards.

The early adopters aren’t waiting for certainty from Washington. They are moving forward with integrated, accountable care, and many are sharing what they’re learning along the way. Other hospitals and health systems would be well-advised to take advantage.

Growing an ACO — Easier Said Than Done

That’s the provocative title of the lead article in the September/October issue of Physician Executive Journal.  It describes how Baylor Health Care System in Dallas faces big hurdles creating an ACO, even though it has a 15 year head start building an integrated delivery system. But Baylor is committed: it’s made ACO development a strategic priority, is investing millions of dollars in disease and population management, and is visiting major employers to convince them to sign on to new integrated delivery products. Still, big question marks remain: Will Medicare pay enough? Will rules against fraud and abuse be interpreted to allow hospital-physician risk and gain sharing? Will doctors collaborate to the extent necessary? This well-done piece makes for good reading by doctors, directors and senior execs.

Bundled Payments: Primer for Boards

The October issue of Trustee magazine includes a concise primer on bundled payments and the implications that hospital and health system boards should understand. Bundled payments alter the incentives of fee-for-service. Instead of being paid more to do more, hospitals, physicians and other providers will be at risk for their costs , fixed prices and quality. The article explains how bundled payments may work and describes the major models and demonstration projects that are underway.

If you don’t subscribe to Trustee, you can see the article at the Trustee magazine website.

Webinar, Resources on Accountable Care Organizations

The Governance Institute has announced a new webinar on “Accountable Care Organizations: The Challenge of Setting Strategy amid Uncertainty.” The webinar will be broadcast Wednesday, September 22, 2010, from 2 pm – 3 pm Eastern time. The 60-minute program will include a live question and answer session. 

Registration is free to members of The Governance Institute and $295 for non-members. To register or for more information click here.

The presenters will be two highly experienced healthcare strategy  consultants: Don Seymour, president of Don Seymour & Associates and Governance Advisor, and John Harris, Principal, DGA Partners.

What’s an ACO? Accountable care organizations (ACOs) are networks of physicians, hospitals and other providers that work together to improve the quality of health care services and reduce costs for a defined patient population.

What’s new? The health reform law establishes a “Medicare shared savings program” for ACOs, to begin no later than January 2012. The law says ACOs are not just a demonstration or pilot project; contracting with ACOs will be a permanent option under Medicare. If they take off, ACOs could accelerate the trend of Medicare paying providers based on value rather than volume. Private payers might take similar approaches. However, Medicare has yet to define many specifics of the program, leaving providers unsure how to proceed. And some integrated delivery models, such as the Greater Rochester Independent Practice Association (GRIPA) have invested in developing clinical integration but found few private health plans would contract with them.

How to respond? Highly integrated providers such as Kaiser, Geisinger, Mayo, and Advocate are already well-positioned to respond when the Medicare program begins.

Most hospitals and physician groups, however, are at an earlier stage of integration and must evaluate what the ACO program means for them. Put bluntly, will Medicare’s shared savings program offer providers sufficient benefits for improved quality and efficiency to justify their investment in the infrastructure needed for integration, from information technology to physician alignment? A pilot group involving ten medical groups had mixed results, but a final report has yet to be released.

For more information on ACOs, check out these resources:


Healthcare CEOs Look at Healthcare Transformation

A lot of articles are appearing that assess the likely impact of the Patient Protection and Affordable Patient Care Act. One of the better ones is “Clinical Integration: The Key to Real Reform,” published by the American Hospital Association back in February. It makes good reading for a board strategic planning retreat. (Members of The Governance Institute can get its excellent new DVD series, “Delivery System Reform.“)

An article that caught my eye with a different twist is a conversation with two visionary CEOs, Chris Van Gorder of Scripps Health in San Diego, CA and Jim Hinton of Presbyterian Healthcare Services in Albuquerque, NM, moderated by Jim Gauss, President and CEO of Witt Kieffer, the executive search firm.

Asked what will be the most critical challenges over the next several years, Van Gorder cut to the core: “We will have to become much more integrated and eliminate system fragmentation among doctors, medical groups, outpatient centers and hospitals. And if what we are reading is true, reimbursement will be significantly reduced over the next decade to pay for health reform, so we will need to take cost out of the system.”

Hinton echoed the integration vision: “We anticipate caring for many more people in our systems with essentially the same level of net revenue we have today. That’s put a premium on consistency, reliability and eliminating rework. Our vision is that the only way to succeed in this new world is through a much more tightly integrated model with more coordination of everything that goes on in the system. We are all about integration. We are transforming systems of care through innovation, work redesign and automation. That is what really is driving us today.”

Bundled payments, accountable care organizations, medical homes and so on may turn out to be sustainable or famous flops, but the idea of payments based on value rather than volume is, I believe, here to stay.  A value-based payment environment will require greater focus on integration through alignment with physicians, information technology, and standardization around best practices, administratively and clinically.

Among my clients, the executive suite and corporate board understands the vital importance of integration, but is having a harder time convincing independent physicians (and even employed doctors) and the trustees of subsidiary hospitals that integration — being able to act as one to deliver quality and value to the patient and community — requires changing business as usual. Van Gorder’s and Hinton’s message is one they would be wise to hear — and heed.

New Issue of Great Boards Newsletter Addresses Clinically Integrated PHOs and Board Portals

The winter issue of the Great Boards newsletter is available now at GreatBoards.org. The issue features two articles:

  • Clinically Integrated Physician-Hospital Organizations (PHOs). PHOs are getting a fresh look as a vehicle to integrate hospitals, employed physicians and independent practices around quality and financial goals. Great Boards chronicles two clinically integrated PHOs—one of the longest running, Advocate Physician Partners (APP) in Chicago, and one of the newest, TriState Health Partners (THP) in Hagerstown, Maryland.

APP is a success story. It has contracts with 10 health plans and paid out more than $28 million in incentives last year to physicians who achieved quality goals in more than 30 improvement initiatives.

THP recently received a favorable ruling from the Federal Trade Commission as it launches a similar effort to unite the local hospital, employed physicians and independent docs in a clinical integration program.  THP hopes to sign contracts with local health plans that will reward providers for providing better care.

With payment reforms from Congress on the horizon, PHOs are coming back from the dead as a mechanism to align hospitals and physicians into accountable care organizations.

  • Using E-Governance to Make Board Work Easier. More and more boards are getting computer-savvy. They’re adopting so-called “board portals” to deliver materials to directors electronically and thereby expedite information flow between the hospital and its board, between subsidiaries and their corporate parents, and among board members themselves.

What is a board portal? It’s a Web-based, online workspace devoted exclusively to the board. It offers directors confidential access to board materials, past and present, and provides tools that make it easier to prepare for board meetings. In this article and an accompanying Buyers Guide (under “Current Issue”), my colleague and governance consultant Linda Battaglini talks to users, describes the 10 essential features of board portals, and compares four commercially available products. Don’t buy or build a board portal unless you read this!

Read and download the winter issue now.

Are clinically integrated PHOs a viable platform to align physicians and hospitals?

Last week, I attended a symposium on clinical integration sponsored by Advocate Physician Partners of Chicago. APP is arguably the country’s most successful physician-hospital organization (PHO) at linking hospitals and physicians to contract collectively with health plans, improve clinical outcomes, reduce costs, and share savings with physicians.

In the winter issue of Great Boards, I’ll examine whether clinically integrated PHOs are a viable mechanism to align the financial incentives for hospitals and physicians to manage costs and improve quality. So I came to learn more about APP’s success story, and whether other system’s boards and leadership should pursue this alignment strategy.

And a success it is.

Out of the 5,200 medical staff members practicing in Advocate’s hospitals, APP includes 900 primary care physicians and 2,500 specialists, as well as eight acute care general and two childrens hospitals. APP has signed contracts with 10 health plans for 280,000 capitated lives and 700,000 PPO lives. APP has clearance from the Federal Trade Commission to negotiate contracts for all its members because of its clinical integration program, in which providers agree to follow best practice guidelines designed to improve quality at lower cost.

In 2009, the clinical integration program is engaging physicians in 37 initiatives designed to meet or exceed goals for 107 measures for clinical outcomes, efficiency, medical and technological infrastructure, patient safety and patient satisfaction. For example, the diabetes care initiative focuses physicians on eight measures of how well diabetes patients are managed outside the hospital, to prevent costly hospitalizations, premature deaths, and diabetic complications such as blindness and kidney failure, In 2009, the program preserved an estimated 9,000 years of eyesight and 6,800 years free of kidney disease, and extended lives an estimated 5,700 years.

APP also boasts success with clinical integration programs designed to achieve smoking cessation, screen for and treat depression, improve asthma outcomes, administer childhood immunizations, prescribe generic drugs, and use appropriate drugs to treat coronary artery disease and heart failure. For the details, see a copy of APP’s 2009 Value Report.

As a result, APP’s physicians received more than $28 million in clinical integration incentive payments in 2008. The average payout was about $10,000 per physician, but some high-performing, busy clinicians earned in the neighborhood of $20,000 in incentives.

Some 800 of APP’s physicians are employed by Advocate, but the rest are private practitioners, and about 1800 medical staff members are not part of the PHO, so APP is a good model to examine whether hospital-employed physicians and independent practitioners can collaborate to achieve common quality and economic goals.

Here are a few of my takeaways from the symposium:

What’s in this for physicians? If a PHO has a genuine clinical integration program, “physicians can align with each other and hospitals to distinguish themselves in the market on the basis of quality; justify higher reimbursement; and conduct collective negotiations with health plans,” said Thomas Babbo, a partner with Hogan Marren, Ltd. and the legal architect of the clinical integration program. “This is about quality and about getting better reimbursement from payers precisely because of this ability to drive better quality. This is value-based, collective bargaining for physicians. It’s not something to apologize for,” so long as it’s genuinely intended to improve quality.

Should you ask the FTC’s permission? Although the Federal Trade Commission has issued a number of advisory opinions describing the characteristics of a clinical integration program that would justify collective contract negotiation by physicians, Babbo generally advises clients to actively engage the FTC up-front regarding what they’re doing, but not to go through this formal process The process is lengthy, the PHO must delay clinical integration while it’s waiting for the opinion, and there’s a risk the FTC will find some aspect of the program to fault. Instead, he recommends following the existing guidelines laid out by the FTC and U.S. Department of Justice since 1996, and in earlier opinions for other PHOs, such as the Greater Rochester IPA and Tri-State Health Partners.

Since Advocate has a successful medical group of employed physicians, why does it need a PHO? The PHO recognizes that “9 out of 10 Americans get their medical care from a solo or small group practice,” explains Lee B. Sacks, M.D., president of APP. Among APP’s approximately 600 primary care physicians in private practice (not employed by Advocate), 300 (50%) are in solo practice, almost 200 are in two or three person practices, and less than 250 are in practices of 20 or fewer physicians. These physicians are not interested in larger groups or hospital employment. “APP is a bridge between Advocate’s employed and independent physicians.”

Will payers play? “You have to have payers in the market who are willing to pay you” an incentive for quality, says Sacks. Since the PHO seeks higher fees from health plans, it has to demonstrate its value proposition, i.e., better outcomes and more efficient healthcare at a lower overall price. Even then, health plans will be reluctant to pay higher fee schedules on the promise of lower overall costs. Babbo recommends going to local employers and making the case for the value proposition of clinical integration directly to them, such as smoking cessation programs that decrease absenteeism and lower healthcare costs. The employers can then become an ally of the PHO when seeking contracts with health plans. Sacks, adds, “Health systems are usually among the largest local employers, so working with the benefits team of the partnered system is an opportunity to demonstrate value to other employers.” In our winter issue, I’ll describe APP in further detail, including its membership criteria, infrastructure, financial incentives, and governance structure, which is physician driven and physician led. I’ll also describe the startup efforts by Tri-State Health Partners in Hagerstown, Maryland, the most recent PHO to get a favorable advisory opinion from the Federal Trade Commission.

Clinically integrated PHOs are one of a number of possible mechanisms for hospital physician alignment and integration. You can read about others, including case studies, on the Great Boards website.

Case Studies of System Integration

Clinical integration to manage quality and costs is taking center stage as health care reform legislation moves through Congress. Expanding access will unquestionably require controlling spending. When Washington is done, whatever the result, providers will have to pick up the pieces and redesign delivery systems to do more with less.

To help, The Commonwealth Fund is releasing 15 case studies to illustrate how diverse types of organized health care delivery systems promote higher performance through information continuity, patient engagement, care coordination, team-oriented care delivery, continuous innovation and learning, and convenient access to care. The first group includes Geisinger Health System and Hill Physicians, a California IPA. In December, Great Boards released five case studies of hospital-physician alignment, including Summa Health System in Akron, Ohio, and Aurora Healthcare in Milwaukee. All make good resources for board reading and discussion.